Economics/Business

What is fixed cost/9 examples/importance/calculation/Reduction

Fixed cost is all expenditure that is not affected by the increase or decrease in the company’s production of products or services. That is, it does not fluctuate even if the company produces more or provides more services in a given period of time.

Understanding fixed costs helps to make financial management more efficient, expanding the strategic vision and optimizing planning. This is because the amount of money that needs to be spent for the company’s activities to be sustained is observed.

By making this visible to managers , projections become more assertive, as well as decision-making.

9 examples of fixed costs in a company

Essential for the operation of the company, a fact that also makes them known as structural expenses or structural costs , fixed costs must always be on the ‘tip of the tongue’ of the finance department.

This KPI is directly related to the company’s production capacity, showing how profitable it is or can become.

Within this qualification, we list 8 examples of fixed costs for a company:

  • Periodic maintenance of equipment;
  • payroll and labor;
  • security and cleaning services;
  • product raw materials;
  • rent;
  • fuel vouchers , meal vouchers and other benefits;
  • electricity, telephone and internet bills;
  • insurance;
  • property and structure costs;
  • between others.

These are just a few examples, more common among companies in general, but of course there are other types of costs and expenses directly linked to your business model.

Companies that have a fleet of vehicles, for example, have in their fixed costs the maintenance of cars and even taxes, such as IPVA.

The important thing is to understand what they are and identify them so that they are described correctly within your budget .

How to calculate the fixed costs of a company?

There is no ready-made formula for arriving at total fixed cost. This scenario is mainly because different types of companies have different types of costs.

The best scenario is to have a spreadsheet or financial management software that helps organize fixed costs. This will save you time, streamline processes and allow you to take better advantage of the financial sector.

If you still don’t have either one, you can follow 3 simple steps to calculate the fixed cost of the operation:

  1. cost survey;
  2. division between fixed and variable;
  3. sum and result.

The survey step consists of verifying all expenses incurred in a given period. Be it a quarter, semester or year, the variation of these expenses is investigated.

This leads us to the second step, which is to separate fixed and variable costs from the observation made in the previous step.

Finally, the expenses must be added to arrive at the total value of these expenses. These same steps allow you to measure the total fixed cost .

It is worth remembering that there is still the unit fixed cost, which is reached by dividing the total fixed cost by the quantity produced. This KPI is inversely proportional. That is, the greater the production volume, the lower the unit cost.

How to reduce fixed costs of a company

Lowering a company’s fixed costs means making permanent savings. For this, it is necessary to change the behavior of employees, negotiate or manage costs . Here we explain some solutions that reduce expenses and contribute to maximizing profits:

Optimize employee time

The more time employees spend within the company, the more resources they consume: water, electricity, coffee and overtime .

In this way, optimizing the time they are at work should be part of the company’s cost reduction policy.

Among the possibilities are campaigns that encourage the reduction of overtime and the appreciation of the worker.

Investing in training and electronic time management software are ways to make people more committed to results.

Reduce paper usage

In the digital age, the indiscriminate use of paper is also an unnecessary expense. To reduce your use, and consequently of ink for printing and pen, adopt computerized alternatives. Scan documents, abuse cloud storage and always use both sides of the sheet.

Software such as digital time control  eliminates paper records and ensures the security of online information, contributing to the reduction of a company’s fixed costs. As for changing the habits of employees, create an environmental awareness campaign and give rewards for the economy.

Change phone plan

Telephone companies, which also offer internet service, have different plans in order to serve customers with different needs.

So, to reduce the company’s fixed costs, evaluate which type of call is the most frequent and which telephone service can best serve you.

Compare services and operators, trying to negotiate. There are often corporate plans for companies of all sizes.

Evaluate the proposals and choose the one that offers the best value for money. Especially in the case of sporadic international calls, it may be worth chatting via Skype.

Reducing a company’s fixed costs requires investments, but in the long run it contributes to the financial health of the organization.

The importance of maintaining control over the company’s fixed costs

These costs determine the profitability potential of the company. In this way, not managing them in the best possible way directly impacts how competitive the organization can be in the sector.

Control over payroll and equipment maintenance, for example, can be the great asset or even the villain of the business.

High fixed costs can culminate in higher values ​​for products and services, reducing the margin and causing the price dispute against more efficient competitors to be lost even in the company’s back office .

Without such good management, the risk of reaching an unsustainable operation and, eventually, going bankrupt is very high. Therefore, great care must be taken in all monitoring and decisions involving the company’s fixed costs.

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